Britannia Radio

 Public finances collapse here in Britain.

Thursday, 19 February, 2009 2:58 PM

After the dreadful prospects for the eurozone sent earlier, readers 
might be tempted to feel smug and complacent.

Well. here’s the antidote to that!  Public finances are chaotic and 
Brown won’t face it and Cameron won’t tell everybody what is in 
store.  A monstrous public failure to face facts in here.

To understand what’s happening this is required reading.  Good luck 
and be of good cheer at all costs!

xxxxxxxxxxxxxxx cs
========================
FINANCIAL TIMES    19.2.09
1. UK overshoots borrowing target
    By Chris Giles, Economics Editor

The public finances took a sharp turn for the worse in the crucial 
month of January as the recession and credit crisis hit corporate and 
personal tax revenues, making it almost impossible for the government 
to meet its borrowing target made in late November.

In his autumn pre-Budget report, Alistair Darling forecast government 
borrowing of £77.6bn in the 2008-09 financial year, a sharp 
deterioration on the £35bn outturn for 2007-08.

But in the 12 months to the end of January 2009, tax revenues have 
been so weak that borrowing has already exceeded the pre-Budget 
report forecast and reached £79.3bn. For the past two months, the 
degree to which the government’s finances have been in deficit over 
the most recent year of data has deteriorated by £10bn a month.

With the public finances falling so much more deeply into the red 
than the Treasury expected, its forecast for a deficit of £118bn or 8 
per cent of national income now appears all but impossible to meet. 
The consensus among independent forecasters, who have tended to be 
slow at realising the depth of public borrowing, is for the deficit 
to reach almost £130bn in 2008-09 with no improvement in 2010-11.   
[Do they mean that or 2009-2010? -cs]

January’s public finance figures are the most important of the year 
because they include the proceeds from self-assessment of income tax, 
financial sector profits and January bonuses.

All three were weak this year leading to the worst January public 
sector net borrowing in the month since 1994-95, a year that preceded 
the introduction of self-assessment in 1996-97.

Because January is such an important month for tax revenues, public 
sector net borrowing still showed a surplus in the month of £3.3bn, 
but that was down from £13.9bn in January 2008. Financial markets had 
expected a much bigger surplus of £7bn.

The main cause of the government needing to borrow more than expected 
is weak tax revenue. Total receipts in the first 10 months of the 
financial year are £10bn lower than in the same period of 2007-08, 
while the chancellor’s forecast for the entire year is a drop of only 
£2bn.

Value added tax is lower, a result of the temporary reduction from 
17.5 per cent to 15 per cent. That was expected. The big problems 
however are in income tax and corporation tax revenues where lower 
profits and bonuses  [!!!] have hit receipts hard. Income tax revenue 
in January was £1bn lower than a year ago, while corporation tax was 
down £2.4bn.

In the official figures, the Office for National Statistics also 
announced it had decided that such is the government’s control over 
the Lloyds Banking Group that it would classify the company as a 
public corporation, joining Royal Bank of Scotland, Northern Rock and 
Bradford & Bingley as British banks with this status.

But because statisticians did not have time to work through all the 
implications of the move, the ONS only partially reflected the 
changes in the figures for government financing and debt.

This led to the incomplete outcome where the cash borrowed by 
government to finance the recapitalisation of RBS and Lloyds no 
longer counted in the monthly totals for government financing 
requirements, but the liabilities of the banks also do not yet appear 
on the government’s books.

Once these liabilities are counted as public sector debt, it will 
cause the official level of net public debt to explode, potentially 
close to 150 per cent of national income, a figure economists believe 
is an exaggeration of the true reflection of taxpayers’ debts.

But underlying public sector net debt is also likely to jump well 
above the projection of a 57 per cent of national income peak in the 
November pre-Budget report, a figure that at the time was seen 
already as placing a large burden on future generations.
=================

2. Surveys highlight gathering speed of UK decline
    By Daniel Pimlott, Economics Reporter

Manufacturing is declining even faster now than at the end of last 
year, figures from the CBI, the employers’ group showed on Wednesday.
The slump is threatening to gut the sector, even as hopes for the UK 
economy have been increasingly focused towards industry.

City staff vacancies fall 64% and pay levels dip - Feb-18
The dire manufacturing data came as a Bank of England survey of its 
regional agents showed companies are suffering from weaker consumer 
spending and investment and tighter credit, with widespread plans to 
cut jobs.

New orders in manufacturing fell to a 17-year low in February with a 
net balance of minus 56 per cent reporting lower orders, down from 
minus 48 per cent in January, according to the CBI’s monthly 
industrial trends survey. Export orders plummeted in spite of weaker 
sterling, underlining the weakness of global demand.

Manufacturers say matters will get worse – the survey showed that 
more expect output to fall over the next three months than at any 
point since 1980. The accelerating decline threatens to derail hopes 
that UK manufacturing could become an alternative engine of growth 
for the British economy.

“We’ve got to be very, very careful about key strategic parts of our 
manufacturing base,” said John Cridland, CBI deputy director-general, 
who called on the government to move quickly to get credit flowing 
again.
“We mustn’t allow systemic damage to British manufacturing now when 
we are shortly going to be wanting to be boosting our manufacturing 
output.”

The collapse in demand for manufactures is likely to deepen the 
recession in the early part of this year, after the sector was the 
main drag on growth in the final three months of 2008.

Although pain in manufacturing has been acute, the Bank of England 
agents’ survey underlined that economic weakness is broad-based. Of 
27 different indicators only seven were not at record lows for the 
series.

The report highlighted the speed of decline in the labour market, 
pointing out that many companies were actively considering drastic 
job cuts.

Consumer spending was still contracting, while there was a widespread 
expectation that precautionary saving would rise because of fears 
over job security.

Businesses have cut back investment amid uncertainty, the survey 
showed. The report “squashed any thoughts of green shoots”, said 
Colin Ellis, an economist at Daiwa Securities.
========================
TELEGRAPH        19.2.09
1. Housebuilding slides to lowest level on record
    Posted By: Edmund Conway

Two more pieces of nasty data today. First the Government debt 
threatens to balloon yet further and then we learn that housebuilding 
has completely collapsed.

The public finance data this morning were pretty shocking. Clearly 
the stats that will most capture people's attention are those that 
show the nationalisation of RBS and Lloyds will add more than a 
trillion pounds to the national debt. Although we knew for some time 
that this would be the consequence of supporting the banking system, 
it is still pretty shocking nonetheless to see it in stark numerical 
terms from the Office for National Statistics.

What is more fundamentally worrying is the complete collapse in tax 
revenues. This, again, is not a surprise given how dramatically the 
economy has tipped into recession, but it underlines the effect it is 
likely to have on the Government's balance in the coming years.

This is significantly more deleterious than the temporary (one hopes) 
increase in the national debt, since this represents "lost" revenue 
which is a consequence of weaker economic growth. It underlines the 
likelihood that the Government will have to borrow even more this 
year and next than we already expected. And when you bear in mind 
that the CBI is forecasting borrowing of around £170bn next year this 
is all the more worrying.

Anyway, for some reason none of this seems to have spooked out the 
currency markets. The pound is again stronger today.  [Ahem!     
Surely that is merely the result of the euro weakening (or ‘sliding’ 
as the ECB calls it when the pound does that)  The markets merely 
think the eurozone is in a worse state than us - today!  -cs]

However, the other stats out today worthy of some attention are those 
on housebuilding. And according to the official figures the number of 
new homes being built in the final quarter of last year was, at 
16,310, the lowest level since comparable records began in 1980.

[- - - - - -]  There are clearly two lessons from this - the first is 
that the property industry is in serious, serious trouble. The 
second, however, is that it means the chronic housing shortage in the 
UK is likely to be even worse over the next five years. However, on 
the bright side (for homeowners), this may well offset the fall in 
house prices, meaning they recover a little bit before they would 
have otherwise done. It means, though, that the dysfunctional nature 
of our housing market, in which first time buyers are priced out of 
the market, is unlikely to go away in the next housing cycle.
=================

2. Welcome to Brown's Billions: a farce remade as a tragedy
[This article was written before the full horror of ir fiscal 
collapse was known.  Iain Martin knew roughly what was coming but,   
like most,  underestimated it!  Nevertheless what he says is still 
true -VERY true -.  I have shortened his opening somewhat so as not 
to overload readers’ tolerance!  -cs]

The growth of the public sector under Gordon Brown and Labour now 
amounts to a national emergency, says Iain Martin.

There is a film from the mid-Eighties which is well worth watching 
again. Brewster's Millions stars Richard Pryor as a man challenged 
with spending $30 million in 30 days if he wants to inherit $300 
million. [- - - - - - -] Hollywood is fond of remakes, and if a 
cinema mogul wants to update Brewster's Millions for a new audience, 
I can think of no one better to cast in the leading role than our own 
Prime Minister. This time it need not even be a work of fiction: it 
could be a documentary.

In Brown's Billions, a Scottish finance minister gets his hands on as 
much money as he can and spends it all. In a decade-long splurge, he 
pumps up public spending, vastly extends welfare entitlements and 
blocks the meaningful reform of public services. With the credits 
ready to roll, he – and we – have very little to show for it.

Just how much has been wasted becomes apparent on a reading of a 
powerful new report published this week by Conservative Home. 
Bankrupt Britain is by Malcolm Offord, a City fund manager. It is 
dynamite.

The report considers the range of unpleasant options from which 
Britain will have to choose (higher taxes, dramatically reduced 
expenditure) [BOTH will be needed! -cs] if it wants to haul itself 
out of this hole. But it is the figures concerning the growth of 
public spending over the past decade and a half which are most shocking.

Bankrupt Britain calmly lays out the numbers for what is called 
government Total Managed Expenditure. In 1993-94 that figure stood at 
£283 billion; today it is £623 billion. If it had risen in line with 
inflation over the past 15 years, the Government would now be 
spending £404 billion. The gap is £219 billion. That's £219 billion a 
year. I repeat, Gordon Brown has £219 billion more to spend this year 
than he would have if he had allowed public spending to grow only in 
line with inflation.

The return on all that extra "investment", which really means 
spending, has been pitifully small. Is educational attainment higher? 
No: if anything the opposite is true. Is public transport improved? A 
little, in certain respects, but it has not been transformed.

And what of health care? Doctors are certainly now very well paid, 
and good for them, but the vast increases in money lavished on the 
NHS have not produced any notable improvement in patient care. That 
is what happens when cash is poured into a state virtual monopoly 
without the introduction of a proper market to ensure it is allocated 
efficiently.

Instead, the size of the state has ballooned, along with its wage 
bill, and in the process an insatiable appetite has grown for 
interfering schemes designed to spend this tsunami of extra money.

The election of a government of the centre-Left was always going to 
mean an increase in spending – it's what Labour governments do. And 
there was a strain of thinking, among non-Labour voters too, that by the
mid-Nineties the ratchet had gone too far in one direction. Could we 
not afford a little more to repair the fabric of the public realm? 
Unfortunately, Gordon Brown had more than "a little" in mind. Now the 
country can afford it no longer.

About this, as about his banking regulation and calamitous role in 
the merger of Lloyds with HBOS, the Prime Minister is deeply in 
denial. Accordingly, we have arrived at a deeply dangerous moment for 
this country. What is needed is a dose of realism. But given the PM's 
denial of culpability on even the smallest matters, we can hardly 
expect him to deal honestly with his citizens on this one.

This column has argued repeatedly that more debt is not the answer to 
a problem caused by debt. And after a surfeit of lies, about cheap 
credit and a boom supposedly going on in perpetuity, the antidote is 
truth. So, we are the most indebted nation in the developed world. 
The Chancellor, even on his own over-optimistic calculations, is 
scheduled to borrow more than £100 billion extra this year to pay the 
nation's bills.

Last year, tax receipts from the housing and financial sectors 
totalled £60 billion, although the Chancellor has calculated that in 
this, the worst recession since the war, there will be a fall of just 
£10 billion. With bonuses collapsing, production shrinking and the 
housing market on its back, do you think he might have underestimated?

The Treasury is so worried about plugging the gaps that it has 
delayed the Budget from early March to April 22 – which will make it 
one of the latest in history.

Meanwhile, Gordon Brown still bangs on about the iniquities of 
potential Tory cuts and appears psychologically incapable of 
confronting the nation's true situation. That would entail admitting 
that the country overspent and needs to change its habits 
dramatically if it wants to see prosperity again.

But even at five minutes to midnight, the juggernaut of state 
extravagance keeps on rolling. It is, we are told, stimulating the 
economy when it is doing no such thing: it is using up valuable 
resources inefficiently.

We learned last week that a 13-year-old boy fathered a daughter with 
a 15-year-old mother; it then emerged that the various members of the 
family account for £30,000 of benefits a year, and no one involved 
works. Six average taxpayers get up every morning and go to work so 
that such families don't have to. Why?

Still there are demands for more. We are told that we need to spend 
much more on services for those with dementia, and I am sure that it 
is true. But from where is the money going to come?

Offord, in Bankrupt Britain, recommends a combination of an increase 
in taxes for highest earners (with a promise that rates will fall 
after public finances are restored), [I would say the tax increases 
must be across the board -cs]  a cut in public spending by almost 10 
per cent and the radical reform of welfare that governments of both 
parties promise but never deliver.

A pledge from the Tories that they will endeavour not to raise taxes, 
but will tackle public expenditure robustly, is probably the 
Conservatives' best hope. But David Cameron believes that there is no 
advantage now in getting in to this area too deeply.  [This is a 
crucial failure on Cameeron’s part.  There is no point in painting a 
rosy picture to get elected for the disillusionment could be 
terminal .  He should come clean about the crisis and offer no more 
than the equivalent of Churchill’s 1940 promise of nothing but 
“blood, toil, tears and sweat” .  The people would respond to the 
honesty-cs ]
I think he would do better to prepare the public and begin by 
explaining the sheer scale of the money wasted.

The cuts need to be tough in welfare, local government and the NHS – 
of an order never achieved by a British government. Around £50 
billion would represent a good start next year.

Increasingly, if we want future prosperity, there is no alternative. 
This has become a national emergency.

==========================
Postscript from the FT     19.2.09
Rail unions to vote on strike action
(with today’s dire news this is all we need right now -cs]

Thousands of rail workers on some of London’s busiest commuter routes 
are to be balloted for strike action in a series of disputes over 
jobs as train operators move to cut costs in the face of slower 
passenger growth.

The call by the Rail, Maritime and Transport union (RMT) for co-
ordinated industrial action threatens some of the biggest disruption 
to commuter networks for years.

The union is to ballot more than 3,500 workers at South West Trains, 
First Capital Connect and National Express East Anglia over plans to 
cut more than 1,000 job.

A further 300 RMT staff at London Overground will also vote on 
whether to strike over claims that industrial relations have broken 
down at the company